Wall Street veteran Yardeni: Cooling inflation is expected, 5% US Treasury bonds are "very attractive"

According to Golden Ten Data, Ed Yardeni, President of Yardeni Research, stated that as inflation is expected to cool, the yield on the US 10-year Treasury at around 5% looks "very attractive."

"To buy a 10-year Treasury at a 5% yield, you have to be relatively optimistic that productivity will drive inflation lower, and I believe that will happen," Yardeni said in an interview. "I think a 5% yield is very attractive."

Yardeni made these comments as US Treasuries were poised to rise for a second consecutive day, following the Democratic Party's sweeping victory in the midterm elections, which fueled market expectations that the Trump administration's tax and spending plans might be constrained. Yields across the world's largest bond market fell by at least four basis points at all maturities, and the benchmark 10-year Treasury yield dropped to 4.84%, the lowest level since September 10.

Yardeni is a Wall Street strategist known for promoting the "Fed Model" framework for stock valuation—which compares the S&P 500's expected earnings yield with the US 10-year Treasury yield. He remarked that interest rates have "returned to long-term normal levels."

"The inflation outlook for the next decade is about 2% to 2.5%," he said. "Meanwhile, if you can achieve a 2.5% real return, that's actually pretty good in the bond market."

He believes the 10-year Treasury yield will fluctuate between 4% and 5%, a range closer to the typical levels before the global financial crisis.